Wednesday, March 31, 2010

"I think a top in the dollar is at hand. I’m not even sure it’s correct to say the dollar went up, in reality, the Euro went down. But as many problems as the Euro has, the British Pound and US dollar are going to crater as well. It’s just that in the race to the bottom, the Euro has on a temporary basis been going down faster"...Bob Moriarity - 321gold.com LINK

(click to enlarge)

I wanted to share this humor, which I copied from Ed Steer's "Gold and Silver Daily" which is free and recommended by this blog and can be found here: LINK

And one more quote, call it "quote of the day," also copied from Ed Steer's daily today:

How long can the US government protect the dollar’s value by leasing its gold to bullion dealers who sell it, thereby holding down the gold price? - Paul Craig Roberts, 24 February 2009, counterpunch.org

At this point, for those who watched Bill Murphy's riveting disclosure of emails which proved that JP Morgan illegally manipulates the silver futures market, Mr. Roberts' comment is purely rhetorical. For those who don't believe that the Fed/Big Banks manipulate the gold/silver market to their benefit, I would urge you to watch Murphy's testimony. I think the action in gold/silver this week is partially a result Murphy's/GATA's undisputable proof delivered to the CFTC/Govt on live t.v. for the world to see. Please note that the major U.S. media is covering this up, but Russia's version of "CNBC" is doing an interview with Murphy in Dallas. At least the rest of the world is interested in The Golden Truth.

Tuesday, March 30, 2010

FXE is the ETF trust that indexes the performance of the euro. Currently 23% of the float is short this trust. That is setting up an epic short squeeze in the euro that will create a lot of pain for the CNBC followers who are long dollars and short the euro. Of course the big banks, the ones who continually rob us in broad daylight without using masks, will make a fortune with their near-record short position in the U.S. dollar and their long position in the euro.

Monday, March 29, 2010

If the World Gold Council (WGC), which is probably the only industry trade group on the planet that does nothing constructive to support the product it is supposed to promote, publishes a report that highlights the growing demand for physical gold in China, the real demand in China is likely at least 2-3 times greater than acknowledged by the WGC. Those who study the gold market have always had issues with the reliability of WGC, as it usually underestimates demand and overstates supply.

China's Central Bank has reported the accumulation of gold over the past few years, but there isn't really anyone who takes seriously the amount China reported last summer any more than anyone takes seriously the amount of gold held by the U.S. Treasury. Obviously, China is understating its gold holdings and the U.S. has refused to let anyone count the gold and verify quality since Eisenhower was in the White House, indicating that the U.S. substantially overstates the amount of gold it owns.

Zerohedge.com has posted the report from the WGC. They've pulled out the salient points and have linked the whole report. Here's an excerpt:

The World Gold Council (WGC) believes that gold consumption in China will continue to catch up with the rest of the world following the deregulation of the Chinese gold market in 2001. Demand from China’s two largest sectors (jewellery and investment) reached a combined total of 423 tonnes in 2009 but domestic mine supply contributed only 314 tonnes during the same year...

Here's the full link: China's Insatiable Demand for Gold. I would like to point out that the WGC report omits the amount of gold being accumulated by the Central Bank. We have no idea what that number is, anymore than we know how much U.S. gold is leased out by the Fed in any given year. Both are large and it's likely that the a large amount of the gold leased out by the Fed ulitmately ends up in the possession of China.

I would like to also remind readers that the Chinese Government recently implemented programs which enable the Chinese citizens to easily accumulate gold, including legalizing private ownership of silver. That will light a demand fuse that ultimately will drive the price of gold/silver much higher.

On another note, I noticed on Friday that spot gold started trading at a price higher than the June gold future "front month" contract. This state of backwardation, as it is known, when it occurs in commodity futures, is indicative of the demad for spot market deliveries exceeding spot market supplies, driving the spot price higher than the future price. And I'm not referring to the availability of coin dealer retail inventory. This refers to the global "big boy" gold, which is the 400 oz. LMBA (London bar market) bars, which are utilized by Central Banks and wealthy investors. Usually the condition of backwardation implies that we can expect higher prices until either demand subsides or supply arrives.

Given that increasing the supply of 400 oz. bars is difficult, especially now that Central Banks are net buyers rather than sellers, the big banks with large short positions in gold futures on Comex, and forwards in London, better pray that the demand side of the equation subsides. There's no rush like a gold rush...

Friday, March 26, 2010

Make no mistake about it, China/India/Viet Nam/Thailand and others in the eastern hemisphere are buying this correction in the gold market with both hands. I don't know that the west has much physical gold to dump on the market - and clearly the ECB system has been a net buyer over the past 2 months - but the east is hungrily and greedily scooping up whatever is out there.

As you'll see from the market color and articles below, the supply of "big boy" gold is dwindling rapidly (I'm not talking about coin dealers with 1 oz. bullion coins and crappy private-minted junk being offered at big premiums to spot. I'm talking about 400 oz. bona fide AND deliverable-on-demand LBMA bars).

"JB" is an articulate, witty and perspicacious metals market professional who shares news and insight on the eastern hemisphere physical gold/silver markets with subscribers to http://www.lemetropolecafe.com/. Below I've pasted his commentary on the eastern markets - he gets his information directly from traders and news reports:

Here's Thursday's commentary based on the overnight markets in the east:

Intriguingly, so also may be China [buying aggressively]. Mitsui-HK today explicitly says: "While euro tried to pull the yellow metal lower, Chinese buying wanted to push it higher”...More concretely, the Shanghai market closed at a $6.08 premium to world gold of $1,091.98, the second day of unusually high premiums. Indian ex-duty premiums: AM $8.18, PM $7.85, with world gold at $1094.91 and $1098.04. Lavish for legal imports.

[please note, the presence of premiums this high in China and India is consistent with the fact that buyers in those countries are scrambling to buy as much gold as they can. While premiums are required for importation, premiums this high are not common. Same with Viet Nam]

Here's the overnight action reported this morning:

Early on Friday morning local Vietnam gold stood at a $29.10 premium to world gold of $1,091.80 (Thursday $27.89/$1,087.20). Private communications today suggest that Chinese gold imports have indeed grown appreciably lately. Also since last Friday Istanbul gold premiums (which are awkward to measure) have been clearly supportive of Turkish gold imports: the kilo bar premium today was an import-friendly $9.42..

Jewellers across Asia chased gold bars after bullion prices dropped more than $10 this week, while main consumer India was stocking up as the wedding season begins again in April, dealers said on Friday…"We are actually running out of stocks. There's not enough time to replenish gold bars. Thailand is the hottest buyer. Their demand is really good because they are quite price-sensitive," a physical dealer in Singapore said…Premiums were steady at 80 cents to $1 an ounce to the spot London prices in Singapore, their highest since early February, but they could rise next week because of the strong demand and tight supplies.”

Gold refineries are facing a strange problem in India now. There is no yellow metal for them to process now. When the gold boom was at its peak in 2008 and 2009, the quantity of scrap gold used to come to the market was very high and many refiners had increased the capacity to process the scrap gold. But, time has changed and the scrap gold flow to these refineries has halted. (Here's the link: LINK)

The moral of this is that just because the U.S.-centric media, financial advisors, brokers and politicians believe that gold is a useless, barbaric relic not worthy of investment, the rest of world is accumulating as much as they can before the REAL fireworks begin in the price. Don't forget, gold has appreciated, in the face of extreme Fed/BOE/ECB intervention, every year for NINE YEARS against ALL fiat currencies - and an average of about 16%/yr. at that.

How did your financial advisor/broker, who treats you to beautiful rounds of golf and lavish meals do vs. that? While the hoi polloi of America watch reality t.v. and dump their scrap gold into cash-for-gold scammers, the rest of the world is sucking up all the gold they can. Keep selling America. It's consistent with the politicians and big bankers, who have been selling this country short for years....

Thursday, March 25, 2010

March 25 (Bloomberg) -- More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report. Here's the news link: LINK.

As per the article, 51.5% of mortgages modified in the first quarter of 2009 had re-defaulted by the end of the year. Now, we know the banks, at the urging of Obama, put strict foreclosure moratoriums on at in the last month of 2009, so the real number is probably higher. Think about this fact: 51.5% of modified mortgages in 2009 re-defaulted within 9 months. That is just staggering. But it's also consistent with re-default numbers that were made available in 2008. In fact, I don't remember the exact percentage, but in 2008 a large number of modified mortgages went delinquent after the first 30 days.

Obama has committed $50 billion to mortgage mods and one of his foot soldiers stated the other day that the Govt is committed to spending every last dollar of that $50 billion. Just based on early statistics, at a minimum $25 billion of that will be flushed down the toilet. That's Taxpayer money. Who benefits? The banks benefit because that money is used to compensate the banks for most of the amount modified PLUS the banks get a few more mortgage payments before the mortgage lapses back into default.

Mortgage default is always and everywhere a bad lending and unemployment problem. What Obama has done is spread the cost of this problem across the all Taxpayers, transferring the cost from the Big Banks to the Taxpayers and bailing out the banks from a bad lending decision. But, then again, ultimately it will be those financing our debt who will suffer the extreme consequences, because there's no way in hell the Taxpayers will ever be able to repay Treasury debt. Maybe the Chinese and Japanes are the real idiots. Got gold?

"A CBS News poll released Wednesday finds that nearly two in three Americans want Republicans in Congress to continue to challenge parts of the health care reform bill" Here's the news link: Americans to Congress: Get rid of this bill

Please note that 41% of those who want the fight to continue are Democrats. Anyone who thinks that the CBS poll is biased toward the right is nothing more than a blind Obama follower. Please note that CBS is controlled by Sumner Redstone, a big Democratic supporter.

Wednesday, March 24, 2010

JPM is cutting a deal with your Government that will enable it to receive a $1.4 billion tax refund. This refund accrued to JPM from its takeover of Washington Mutual. The bondholders of Wamu will also receive a cash rebate from Obama. Here's the news link: LINK

If you do the math, you'll find that JPM paid $1.9 billion for Wamu. This means that, with the $1.4 billion tax refund, the Taxpayers have paid for 73.6% of JPM's purchase of Wamu. It then sold off anything not of use and wrote-up the value of the toxic assets it acquired, some of which were no doubt sold to the Fed with funding that is backed by the Treasury.

Now, here's that game they played with the assets they kept. They haggled with FDIC over the value of Wamu's toxic assets in order to write them down to an unreasonably low level: "Seriously Sheila (FDIC chief dope Sheila Bair) these things are illiquid and mostly worthless." The FDIC (read: You, the Taxpayer) was stuck with the tab for the difference in value between JPM's/the Taxpayer's $1.9 billion purchase and the amount that was written off pre-purchase.

Then, with TARP and all the other trillions thrown into the system, JPM has been able to write up the rest of Wamu's assets that they haven't liquidated to the tune of $10's of billions, recognize paper income in the billions, and receive Fed funding against the marked up assets in order to fund compensation. This has been a money printing machine for JPM which has been financed by the Taxpayers.

If I took the time to go thru JPM's last 2 years of 10-Q's/10-K's, I'm sure I could quantify with some accuracy the amount of money JPM has manufactured from its "purchase" of Wamu AND the amount of money transfered directly and indirectly from Taxpayers and investors into JPM's coffers. Suffice it to say that it's in the several $10's of billions, on what is now a $500 million net investment by JPM.

Further suffice it to say that the Taxpayers are getting screwed more ways than a porno actress with 20 years of film credits. I'm sure Obama, Geithner, Bernanke, Blankfein, Dimon and Henry Paulson are accepting your expressions of gratitude.

[Housing news update: New home sales tank 2.2% in February "to an annual pace of 308,000, seasonally adjusted, which is the lowest rate since the government began tracking the data in 1963" News link. This was well below consensus estimate expectations]

The Mortgage Bankers Assoc. released its weekly mortgage finance index - which shows purchase and refinance applications (note: not approved mortgages, just applications). For the latest week in March, the overall loan application volumn decreased 4.2% from a week earlier.

Bloomberg highlights just the purhase index component on its website, which rose 2.7% from a week earlier "making for a third rise in four weeks that points to improvement for home sales including March data" Link.

Let's look at the crucial information the Bloomberg neglected to report. From the MBAA news release MBAA Link: The refinance index was down 7.1% from a week earlier, the purchase index was down 15% from the same week last year.

Anyone see any indication of housing market "improvement" in those numbers? Hint: look at yesterday's existing home sales numbers, which were horrible and which I posted on below. As the MBAA often explains, typically someone applying for a mortgage will file more than 1 application, in order to cut the risk of denial. What this does is skew the numbers to the high side, so the actual purchase activity is lower than the applications number reflects. Furthermore, the index measures applications, not approvals. Real purchase activity is lower than than the applications index reported would indicate.

Clearly the media is doing whatever it can to shmear lipstick on the dying pig of an economy. The system and the media's lack of truth in reporting becomes more Orwellian by the day...

Tuesday, March 23, 2010

The Fed is enabling free credit to consumers now. I just got off the phone with someone who said that lately they've been inundated with 0% credit card offers - 0% for 12 months and 0% on balance transfers. Of course, this is sheer insanity. It would appear that the Fed/Obama are trying to stimulate another big wave of shopping mall/big box retail consumption.

Lest you forget, credit card debt is unsecured, backed only by the full faith and credit of the consumer. Also don't forget that a large portion of the big bank bailout was related to monetizing credit card defaults.

This is the ultimate result of the complete moral hazard imbued in our system now. The Fed/Bernanke/Big Banks know that Geithner/Treasury will compensate them for any losses from default. So they can lend away for free, make lots of money on hidden fees, late fees, over-limit fees, etc and face ZERO downside.

This will not end well for our system and especially not well for the Taxpayer.

The Nat'l Assoc. of Realtors reported it's existing home sales number for Feb. today and the numbers are much worse than the headline that most analysts and investors will look at. Sales fell for the 3rd straight month down to a "seasonally adjusted" 5.02 million annual sales rate. You can bet your gold that the number is statistically skewed to the high side. Inventoies of existing homes for sale jumped by 10% 3.59 million, leading the normally uber-bullish NAR chief cheerleader to state: "Yun said the January-to-February increase in inventory was much larger than usual in February. Inventories represented an 8.2-month supply at the current sales pace, the most since August." (LINK). Keep in mind that March/April is typically the peak listing period, so expect to see a lot more "for sale" signs in your area as homeowners either engage in "strategic default" (i.e. send their keys to the bank) and vacate or the ones who still have equity to preserve decide to sell.

Please bear in mind, that the inventory of existing homes would be substantially higher if banks were to release their foreclosed home inventory (REO - real estate owned) onto the market. Furthermore, as per the self-imposed foreclosure moratorium by big banks during December and January, expect that the foreclosure rates will begin to spike - we're already seeing this to some extent in the numbers. As banks let foreclosed homes pile up, expect the market will "feel" this "shadow" inventory and buyers will likely wait. Also expect that most "frothing-at-the-mouth" buyers who jumped to take advantage of the massive taxpayer tax credit subsidy, which theoretically expires April 30, have already likely made their purchase. Too bad for them because I expect prices to drop another 5-10% this year alone from where we are now.

Monday, March 22, 2010

Tax-evasion, covering up the fraudulent accounting of the banks he was supposed to be overseeing, lying under oath in front of Congress, and now warehousing junk loans at the NY Fed for Lehman - WHERE DOES IT END? Here's the latest from the HuffPo:

As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn't sell in the market, according to a report from court-appointed examiner Anton R. Valukas. The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a "warehouse" for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds. (HuffPo Link)

There you have it. Geithner was aiding and abetting illegal activity and assisting Richard Fuld - who was a on the board of directors of the NY Fed at the time - in hiding the full extent of Lehman's insolvency. Geithner should immediately be fired and all of his email accounts, phone records and files from the NY Fed and his office at the Treasury should be seized. He needs to be investigated.

The other, bigger issue, as raised by the HuffPo article, is to what extent is the entire Federal Reserve system hiding toxic assets. This isn't just related to Lehman and this is one of the main reasons that Bernanke and Geithner vigorously oppose all Congressional attempts to force an audit of the Fed (Bernanke's Fed is spending millions to fight this):

Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books. "The Fed legally is forbidden from taking such assets. There's a legal requirement that the Fed's assets be investment grade," Rep. Alan Grayson (D-Fla.) told HuffPost.

This will continue and get worse until either the system collapses under the sheer weight of the fraud and corruption or the Fed continues to cover-up the fraud by hyperinflating the currency. I guess we ultimately collapse either way. The least Obama could do is throw us a bone and get rid of Geithner.

If you're holding paper currency, you have to have some kind of trust that the country that issued it is not just going to print its way out of its problems. That's a real concern right now. Gold, on the other hand, has real intrinsic value, unlike a paper currency which can be debased by its government. – Sacha Tihanyi, currency strategist, Scotia Capital

Friday, March 19, 2010

In a development that is reminiscent of the whistleblower and star witness that emerged in the Enron collapse, AP is reporting that a a former Lehman Sr. VP had alerted upper management that Lehman was underreporting its amount of outstanding debt each month by billions. He was promptly fired and reached a termination agreement which stopped paying after Lehman collapsed. He is now a creditor in the liquidation proceedings.

"A Lehman Brothers whistleblower warned his bosses that accounting gimmicks the bank used before its collapse may have been illegal, his lawyer said Friday." Here's the Yahoo News link: LINK

Lee wrote in his letter that "I believe the manner in which the firm is reporting these assets is potentially misleading to the public and various governmental agencies," Lee wrote. "If so, I believe the firm may be in violation of the code."

Clearly there is a huge scandal/cover-up here that goes all the way up at least to then NY Fed Chairthief, Tim Geithner, and probably all the way up to Bernanke. Chris Dodd has called on Attorney General Eric Holder to investigate. As per my post below "Lehmangate Part 2," I explain that Holder is no stranger to enabling fraud and corruption as a public official, so I'm not holding my breath that he will do anything. Please email your relevant House Rep and both Senators if you are angered by this and want to see justice.

BUT, there is a smoking gun, it's still smoking and there can now be NO QUESTION in the minds of skeptics that this is a huge scandal unfolding.

THIS IS HUGE: Last year Bloomberg News filed a Freedom Of Information Act (FOIA) request for documents related to bank borrower use of the Fed discount window and other programs. The Fed denied the request and Bloomberg filed a lawsuit. Fox News piled onto to this lawsuit. A lower court granted Bloomberg's request and, of course, the Fed filed an appeal. The Fed's lame argument was that disclosing this information would be less likely to use the discount window if they knew their use would be disclosed. (Credit goes to my friend and colleague Andy for alerting me to the headlines when they hit the newswire)

"The requirement of disclosure under FOIA and its proper limits are matters of congressional policy," U.S. Circuit Judge Dennis Jacobs wrote in the Bloomberg decision. "The statute as written by Congress sets forth no basis for the exemption the Board asks us to read into it. If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute." Here's the article: WSJ Link

Although I'm not a lawyer, and although I believe that the way this decision is written the Supreme Court will not review it, I do expect the Fed to file for the Supreme Court to rule on this and possibly file for stay of the decision pending SCOTUS review. This would force a delay of executing today's court order if for some reason the stay is granted. I doubt SCOTUS would overturn this decision, since the judge stated that Congress would need to change the law. Given how much money the Fed is spending to fight Congress from passing greater transparency and audit laws, I would suspect the Fed will throw up as many roadblocks as it can legally invoke in order to avoid complying with this court order. It's really a shame how sinister and corrupt our system has become.

The court also ordered further searches of lending records held at regional Federal Reserve banks "that are considered administrative records of the Fed board." The judge gave the Fed leeway to fight the disclosure of those searches pending court review.

This whole situation stinks of Bernanke and his Fed counsel, Kevin Warsh, doing what they can to fight transparency and full, legally required disclosure of Fed activities. I am still appalled that Bernanke had the balls to get up in front Congress and ask for even MORE oversight power at the same time as it was being revealed that HIS Fed and Geithner's NY Fed had full knowledge of Lehman's fraudulent use of Repo 105. As my colleague Jesse pointed out yesterday, Bernanke may wish he had pleaded the 5th to any questions dealing with that matter IF Congress has the determination to find out The Golden Truth.

Thursday, March 18, 2010

Bloomberg News reported this morning that Central Banks globally in 2009 increased their gold reserves for the first time since 1988 at the fastest pace since 1964. Moreover, 2009 saw a general movement of investment globally into gold: “There’s clearly been a renaissance of gold in central bankers’ minds,” said Nick Moore, an analyst at Royal Bank of Scotland Group Plc in London. “It’s not just been central banks taking on gold, but a general shift for physical gold in the investment sector” (LINK).

We know that China, Russia and India are hoovering gold. And we know that the European Central Bank system has not sold any gold for several weeks and is on track to fall well short of its yearly sales quota of 400 tonnes. We don't know what the U.S. Fed is doing with its gold, as there is absolutely no transparency on this matter. The U.S. gold reserves have not been independently verified or audited since Eisenhower was President and every attempt to obtain information about the gold using the Freedom Of Information Act has been denied by the Fed. A lawsuit by GATA seeking to force the Fed's hand is currently pending in the U.S. district court in DC.

I believe that the massive accumulation of gold by Central Banks represents a gradual movement from a global currency system that is based on fiat - "full faith and credit" (i.e. "trust us") - to one which will be based on a currency system with some kind of hard asset backing, and that the hard asset will be gold. I'm not alone with this view, and as nauseating as it is for me to quote Dennis Gartman, he is of the similar view as me (from the Bloomberg link above): “Gold is quietly, at the edge, becoming the world’s second reservable currency, supplanting the euro and rivaling the dollar," Dennis Gartman, a Suffolk, Virginia-based economist and hedge-fund manager, said in his Gartman Letter today. “The trend shall continue months, if not years, into the future."

It will take some time and a considerably higher price of gold in order to accomplish a gold-backed currency system. Historically, when the world has operated under such a system - which was really up until the Bretton Woods Agreement in 1944, Central Banks held 40% of their currency reserves in gold. Consider now that most CB's hold well under 10% of their reserves in gold. Given the declining output in gold -something which can be partially remedied by a much higher price of gold, which would stimulate more exploration and production - it will take a significantly higher valuation price for gold in order to achieve this historical 40% reserve metric.

Thus, the message of the market with respect to gold is clear: smart investors should shift a considerable portion of their investment portfolio into gold (and silver and mining stocks) and the price of gold is going to go much higher for several years. If you think I'm whacked out in my view, please take a few minutes to read this essay on using gold as a currency backing written by none other than Alan Greenspan in 1966: GOLD AND ECONOMIC FREEDOM

"Senate Banking Committee Chairman Christopher Dodd’s chief counsel in 2008 traded stock in Morgan Stanley, Wells Fargo & Co., American International Group Inc. and other rescued companies as the panel considered legislation to address the credit crisis, according to her financial disclosure form filed with the Senate." (LINK).

Someone please explain to me how Amy Friend, Dodd's chief legal counsel, would not have had access to non-public information that inspired her to buy these stocks. Anyone who believes that these are clean transactions is also the type who is expecting a visit from the Easter Bunny next month.

To be sure, under the strict letter of the law, and with some fancy legal maneuvering from the type of legal counsel that got O.J. off the hook, I'm sure if this were to be put under extreme legal scrutiny and investigation, there would be, minimally, ethics violations in the extreme, and most likely evidence of transacting on insider information. At the very least, anyone associated with Dodd's activities as Chair-thief of the Senate Banking Committee should be prohibited in trading financial securities of any kind.

No doubt this will pass by with not even a censure from Congress. In fact, just like Goldman partner, Steve Friedman, who made millions loading up on Goldman stock while he was on the board of directors of the NY Fed - just before the NY Fed bailed out Goldman - I'm sure this egregiously unethical, corrupt activity will get lost in the sands of time.

Back in 2002, a colleague of mine and I opined that, as the financial/housing bubbles popped and the real damage starting collapsing our system, we would see fraud and corruption emerge that would blow our minds. Every day I wake up to new revelations, that of course go unpunished, that blow my mind. I hope someone in Congress takes up this cause, but I'm not expecting anything to happen.

Wednesday, March 17, 2010

THAT is the question that should be investigated at this point. What other kinds of frauds are being perpetrated by the thieves on Wall Street and which highly placed public officials are enabling that fraud to continue?

Clearly, upon examing all of the evidence and connecting the dotted lines, Lehman committed Enron-esque fraud with its Repo 105 maneuvers and was aided and abetted by its accountant, Ernst & Young and by Federal Reserve officials, at the time, specifically Tim Geithner. At the very least all of the upper executive management team at Lehman, the board of directors at Lehman, all relevant professionals and senior management at E&Y should eventually be under indictment. I would settle for the forced resignation of Geithner, but he should be thoroughly investigated and indicted as well. Don't hold your breath for this, recall that current Attorney General Eric Holder is the guy who wrote the pardon letter for Marc Rich that Bill Clinton signed just before leaving the White House. Holder is no stranger to the enablement of criminal activity and tax evasion.

I'm starting to wonder if gold's unusual relative strength in the face of the aggressive, unmitigated manipulation attempts to get it lower over the past month is a signal that Lehman's fraud is just the tip of the iceberg. Ernst & Young signed off on a balance sheet accounting maneuver that was clearly and unequivocally illegal. Even an accounting 101 student could make that determination. It leads one to wonder "what the hell else is hiding in Wall Street's accounting closet that is being approved by our "trusted" accounting firms and ignored or enabled by the Fed? We know that Goldman is involved in all kinds of non-transparent, at a minimum unethical, and likely fraudulent OTC derivatives activities. They roll out their 10-K every quarter with their accountant's stamp of approval and Lloyd "I'm God" Blankfein smiling and pontificating at how great Goldman is at making profits and managing risk. But what is really going on behind the curtain. And even worse, to what extent are Bernanke, Geithner and even Obama aware of just how fraudulent and corrupt everything is on Wall Street - and the manner of accounting for it?

And now we have Banana Ben begging Congress, and the public, to sign-off on handing even MORE oversight and regulatory responsibilities to the Fed. Just today Bernanke is making the case that "the Fed’s 'wide range of expertise' makes it 'uniquely suited to supervise large, complex financial organizations and to address both safety and soundness risks and risks to the stability of the financial system as a whole'” Bloomberg link.

Set aside the fact that Bernanke never saw the housing bubble, mortgage bubble, toxic asset bubble, banking system collapse - his "uniquely suited" oversight abilities cost the Taxpayers of this country trillions. Let's examine Bernanke's statement in the context of Lehmangate and Repo 105.

Where was Bernanke's oversight abilities while his team was in Lehman's office for two years with full access to all books and records? Let me quote again from Andrew Ross Sorkin's statement yesterday:

Almost two years ago to the day, a team of officials from the Securities and Exchange Commission and the Federal Reserve Bank of New York quietly moved into the headquarters of Lehman Brothers. They were provided desks, phones, computers — and access to all of Lehman’s books and records. At any given moment, there were as many as a dozen government officials buzzing around Lehman’s offices (link in the post below).

The Fed WAS in a position of unfettered and direct oversight at Lehman for two years leading up to Lehman's collapse and yet Lehman still pulled off massive fraud - right under your nose, Ben. Either you are a complete moron or you are a psychopathic liar. Which one is it Ben?

Now that Lehman has collapsed under a massive weight of fraud and corruption - and all of surviving Wall Street was allowed to feed greedily, with the help of TARP, off the carcass, the real question is just how much fraud is being currently covered up and papered over? It would seem to me that after Enron, and the ensuing series of massive, ever-larger financial collapses that have occurred (Refco,Bear Stearns, AIG, Fannie Mae, Freddie Mac, GMAC, etc), that our political leaders and those charged with regulations and oversight, including the Fed, would be interested in cleaning up this mess and putting those who created and participated in this mess in jail.

Will this ever happen? Not if the Fed is given greater powers, not if Geithner and Larry Summers remain in the White House and not if the current crooks leading Congress are allowed to remain in power. At the margin, it's up to the public to do something about this. If we allow this to continue, the problems will only grow larger and the U.S. will eventually collapse under the sheer weight of too much debt and fraud. Otherwise, I hope everyone who understands this is accumulating as much gold and silver as they can.

Tuesday, March 16, 2010

(Note: I'm going to post two parts to this post. I think it's important for all who are interested to really understand what happened, why and who's to blame. It's easier to eat an elephant one bite at a time).

You'll see that Geithner was unequivocally involved with knowledge about Repo 105, LEHMANGATE. But the real question is, at what point in time did Obama know? And if Obama did not know, then he's unworthy to be President because it means he lacks the political strength, depth and experience demanded by the job (what did he run before being elected?). I believe we are watching another "Watergate" unfold. The difference between then and now is that we may not have political leaders in Congress who are willing to do what's required to make the full truth known.

I finally spent some time dissecting exactly what Lehman did and how they got away with what they were doing. Let me say this: If all of Lehman's upper management PLUS the relevant Ernst&Young people PLUS the relevant people at the NY Fed - including Tim Geithner - do not do jail time over this, it's time to either start organizing a revolution or move out of the country. If these guys get away with this without serious legal and financial punishment, it is the clearest indication that our country is no longer held accountable by the Constitution OR Rule of Law in any respect. It means that full-scale mob-style criminality has invaded every aspect of our Banking, Corporate and Government systems, starting at the top with the White House and Congress.

Just to summarize briefly and coherently what Lehman did: Lehman engaged in repo transactions which, at the surface appeared to be standard repo maneuvers used by banks to raise short term financing by taking Treasury securities and sending them to a counterparty, who takes the Treasuries as collateral and gives Lehman cash to use on a short term basis - usually overnight to two weeks. Lehman then unwinds the repo by sending the cash plus a little more - representing interest paid on the transaction - back to the lending entity and the lender sends back the Treasury collateral back to Lehman. The transaction is accounted in a way which does not change any aspects of Lehman's balance sheet for accounting, regulatory and financial purposes.

What Lehman did is exploit a rule that says if Lehman sends collateral representing 105% of the cash they borrow, under accounting regulations, Lehman can account for the transaction as a "sale of securities" and use the cash taken in to repay other short term debt, making Lehman's balance sheet looking less leveraged - i.e. of much higher quality - to regulators and investors at the end of each quarter. As Lehman approached bankruptcy, it started including risky, worthless securities as part of the "repo" collateral package - toxic assets that Lehman could not get off its balance sheet at any price. Using this type of collateral is unconventional in the extreme and could NEVER be considered a "sale" of securities under any non-fraudulent accounting ruling. NEVER.

The Treaury collateral Repo 105 would be okay if it were done once or twice, but Lehman did it repeatedly and systematically every quarter since at least 2007. Anyone with an accounting 101 background from a good school knows that Ernst&Young should have raised a red flag and disallowed the treatment of the transaction as a "sale" the second time Lehman used it. Afterall, doing this once without reversing the transaction could for sure be considered a bona fide sale. Maybe even with the reversal (the unwind of the repo). But to engage in this systematically and serially every quarter would raise an objection over the accounting treatment as "sale" and any accounting firm doing its job properly and ethically would not sign off on the accounting treatment. This is especially true once Lehman started using toxic waste as collateral. Clearly pure manipulative fraud.

To think that E&Y did not know any better is to ask us to believe that the E&Y people either are complete idiots or do not know accounting rules. Stupidity and ignorance notwithstanding, we can only conclude this situation was pure nefarious intent to fraud in which E&Y participated. Remember Arthur Anderson/Enron if you think this is not probable.

In fact, just this morning, clusterstock.com has posted an article from Andrew Ross Sorkin who says that the SEC and the Federal Reserve Bank of NY (Tim Geithner's NY Fed) were all over Lehman during the heart of the "Repo 105" period (here's the link: Geithner knew about Repo 105).

Almost two years ago to the day, a team of officials from the Securities and Exchange Commission and the Federal Reserve Bank of New York quietly moved into the headquarters of Lehman Brothers. They were provided desks, phones, computers — and access to all of Lehman’s books and records. At any given moment, there were as many as a dozen government officials buzzing around Lehman’s offices.

These officials, whose work was kept under wraps at the time, were assigned by Timothy Geithner,then president of the New York Fed, and Christopher Cox, then the S.E.C. chairman, to monitor Lehman in light of the near collapse of Bear Stearns.

What this tells us is that not only are all of the Lehman's upper management AND the E&Y people involved are guilty of direct fraud and corruption, but that everyone from the NY Fed and the SEC who were involved either were complete idiots with respect to basic accounting rules and reguations (and should be fired immediately with no pension benefits) OR that they enabled the fraud to persist by looking the other way. This would include Tim Geithner, who should no longer be given the benefit of using the "I can't recall" or the "I had no idea" defense. He is clearly knee-deep in this. Geithner's motivation to look the other way would be to keep the market from seeing the extent of Lehman's insolvency.

PLEASE KEEP IN MIND THAT LEHMAN CEO RICHARD FULD WAS A MEMBER OF THE BOARD OF DIRECTORS OF THE NY FED AT THIS TIME AND THUS HAD DIRECT INFLUENCE OVER GEITHNER.

For starters I would call on Obama to force Geithner to either resign from his Treasury position or outright fire him. Fool us twice - cheating on taxes and getting away with it plus his story about not knowing about AIG/Goldman - shame on us. Fool us again, time to impeach Obama unless he gets rid of Geithner immediately.

Monday, March 15, 2010

Make no mistake about it, that $46 million being paid out to the funny money traders who cost this country $100's of billions is YOUR taxpayer funds. And it even has Obama's stamp of approval on it via his beloved Pay Czar, Kenneth Feinberg. They dressed up the pig with lipstick by explaining that Feinberg insist they cut back the bonus pool by $21 million to $46 million - to be paid to 70 people. That's just great except AIG is still bleeding billions every quarter, so all it means is that Geithner/Obama are transferring $21 million less of YOUR money to losers. Feel good about that? AIG should have been allowed to fail, and it would have thankfully taken down Goldman and others with it. We might be on the road to serious recovery and reform if that path had been followed....think about that the next time you see an article about huge cuts to education and all of the people outside of Wall Street struggling to feed their families...

Sunday, March 14, 2010

Toss that onto the logpile before you throw a match on it, along with the $3 trillion in underfunded State employee pensions, $6 trillion in FNM/FRE debt guarantees, and these black hole guarantees which probably add up to another several trillion: AIG, GMAC, GM, FHA, FDIC, Federal Reserve toxic assets, Citicorp, all the other Too-Big-To-Fail Wall Street banks...ad nauseum.

For many years, the Federal Govt tapped into the Social Security Trust for funding, issuing the Trust special Treasury bonds. Now the Govt owes the Trust $2.5 trillion. It was basically the same financing mechanism as selling bonds to the Chinese or Japanese, except that the Chinese or Japanese can dump their bonds in the freely traded the U.S. Govt bond market. The SS Trust has only the full faith and credit of the Govt to pay it back. Here's the AP article link from Yahoo: What's 2 1/2 Trillion Among Friends?

About 6 years ago I was debating the future of this country with some arrogant, smart-ass know-it-all retired surgeon from Wash DC. I tried to get him to sell his house in Potomac, MD for the $1.8 million it was worth at the time - it's now worth maybe $900k. I also explained to him that I would never see Social Security payments and would gladly accept a substantially discounted present value payment for the money I paid into the Trust in exchange for foregoing any future benefits to me. He rolled his eyes and said I was an idiot.

Who's looking like the idiot now? Weimar-style hyperinflation of the currency is just around the corner. It's the ONLY way the Government is going to be able to make ends meet on the budget deficit plus all the other many trillions in claims piling up. The thieves on Wall Street, aided and abetted by the thieves in the White House and Congress, are stealing anything that's not nailed down before the whole system collapses. It's not a matter of "IF" but of "WHEN."

“Even with my moderate growth forecast, the economy will be operating well below its potential for several years,” Yellen said on Feb. 22. “If it were possible to take interest rates into negative territory I would be voting for that.”(source: Financial Times News Blog).

Not sure if Yellen's words are supposed to make us laugh uncontrollably or cry. I will point out that gold is up about $9 this morning and the dollar is getting hit pretty hard, losing 80 overnight. I don't think I need to comment on Yellen's monetary philosophies - the market is telling us all we need to know. Got gold? If you don't you better think about getting some before the price goes a lot higher.

And on that note, here's my quote of the month:

Anyone who can watch the trading patterns in gold the past 10 trading days from the time Asia opens until the time after Comex opens and still chooses to believe that the U.S. Government does not manipulate the price of gold is either mentally retarded or clincally insane.

Thursday, March 11, 2010

It's simple, really. Everyone knows, or should know, that the U.S. Govt reports owning/holding - i.e. that gold is in secure custody, every ounce accounted for - a little over 8,000 tonnes. That's around 281 million ounces, or around $310 billion at today's price of gold. The problem is, this gold stash has not been independently physically audited OR verified for authenticity since Eisenhower was President. We are expected to put our full faith and trust that Government is telling us the truth about it. However,this number is nothing more than a simple ledger entry on the balance sheet of the U.S. Treasury. Don't forget, wealthy investors with Bernie Madoff received monthly statements which showed their account value - but it wasn't there until investors started asking for it back - and then it wasn't there.

Now, how many people out there have watched Ron Paul grill Bernanke or Paulson or Geithner or Greenspan just waiting for him to ask the dagger questions we all want answers to, BUT Ron Paul does nothing more than pontificate and display his knowledge of Austrian Economics, leaving little time for his questions to be answered (5 minute limit, of which Mr. Paul usually takes up 4 1/2 minutes of it)? Every single time I wait for Ron Paul to fire off simple, direct questions and then wait for the answers. He never does.

Here is my proposal - and I would love it if anyone reading this could put this in front of Congressman Paul. All Mr. Paul has to do is ask this question: "Secretary Geithner/Chairman Bernanke: Can you please state for the record the amount of gold owned and physically possessed - free from lease and swap claims - by the U.S. Government - this is a two word answer only. Now remember you are under oath when you answer this question, and by answering this question you hereby authorize me to send, immediately, an independent auditor, by power of the Consitution, to go examine the gold that you have stated is owned and possessed by the U.S. Government, by directing my auditor team to the exact location of those holdings with FULL authority to audit, count and verify the authenticity of this gold."

Then Congressman Paul ceases speaking and waits for the answer. Why is this not possible? This is a Constitutional issue. Does anyone care about the Consititution anymore? Here is what the Constitution says with respect to the official currency of the U.S. Government Article I, Section 10, Clause 1:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

It's right there. Not many people realize this and our Government ignores this. In fact, when Nixon closed the gold window back in 1971, it was a de facto default on U.S. obligations. Up until that point in time, any foreign Government was able to redeem their claims on the U.S. Govt for gold. Charles de Gaulle started a run on the U.S. gold by exercising this right. At that point in time, because of the build-up in debts related to the Viet Nam war effort and Lyndon Johnson's welfare entitlement programs, if every foreign claimant had tried to follow deGaulle to the gold window, the U.S. would have not been able to redeem all of the claims with gold. That's a debt default. Very straight-forward.

Congress was originally understood to have no power to make anything legal tender outside of federal territories, under Art. I Sec. 8 Cl. 17 and Art. IV Sec. 3 Cl. 2, but in 1868 a Supreme Court packed by Pres. Ulysses S. Grant, in the Legal Tender Cases, allowed Congress to make paper currency issued by the U.S. Treasury, backed by gold, legal tender on state territory, a precedent that remains controversial to this day, when courts allow paper currency not backed by anything to be considered "legal tender".

So you can see, even by that Supreme Court decision, the amount of debt issued by the U.S. Government MUST be backed by gold. The U.S. now has over $12 trillion of Government debt issued vs. a supposed $310 billion in market value of gold. You make your own conclusions there.

Now I suspect, and consider myself correct, that the U.S. does not have ANY ability to redeem claims against it with gold. I really wish Ron Paul would exercise his ability to get to the golden truth of this matter.

Wednesday, March 10, 2010

Another big NYC real estate mogul is taking gas on one of his buildings. Unfortunately, the beneficiaries (teachers) of his co-owner, the California State Teachers Retirement System, will most likely bear the economic brunt of this "imminent default," as I'm sure Larry Silverstein has taken more out in fees connected with the deal than he has left in as equity, or would be on the hook for when the deal takes a dirt nap. Recall, Silverstein was the real estate guy who profited handsomely from the destruction of the World Trade Towers, as he benefitted nicely from the property and casualty insurance policy he had recently re-upped on the WTC complex.

If I had to guess, knowing what I know about how big State pension funds are marking their private equity and real estate holdings, I would bet that CalSTers has this investment fully valued. It seems it's always the little guy who gets screwed these days, as the teachers who rely on CalSTers for their retirment income will take a big hit on this one and many others like it.

Whoever heard of a bubble in which the major money center banks are so perilously short it? A bubble requires a broad participation and belief, and the encouragement of the market makers. And now a statement from an "SEC official" that there is a gold bubble. This, from the very people who allegedly could not see the tech, housing and credit bubbles.

I would like to add to this that someone asked me if all the pro-Geithner media blitz we've been deluged with lately is a massive smoke-blowing attempt to save Geithner from being run out Washington, DC. To that I replied: As long as Geithner keeps funnelling Taxpayer money into the pockets of the Big Wall Street Banks who control Congress and Obama, Geithner will remain in his job. He's doing exactly what he was put into that job to do, despite being a serial, multiple-year tax-dodger and who knows what else. Welcome to "Animal Farm," by George Orwell.

Tuesday, March 9, 2010

I've been getting a lot of inquiry as to when we can expect Banana Ben to announce the extension of the Fed using printed money and Taxpayer guarantees to continue bailing out Big Banks and the Treasury. My answer is that we may not see Banana Ben advertise his continued deployment of money-dropping helicopters. In fact, I would like to post a quote from Alan Blinder, multi-decade Princeton professor and academic colleague of Banana Ben AND a former Vice Chairman and FOMC Commitee member of the Fed:

"The last duty of a central banker is to tell the public the truth." -- Alan Blinder, Vice Chairman of the Federal Reserve, on PBS's Nightly Business Report in 1994

Just stare at that Statement for awhile and learn to stand in awe of it as a fundamental Truth of Nature. It really deserves to be incorporated into the Constitution as part of the Bill of Rights.

The fact of the matter is that QE is going on as we speak, only it's disguised as Treasury, aka Taxpayer guarantees. The FNM/FRE/FHA/FDIC/State Unemployment Fund bailouts are QE. The GMAC/AIG cash bailouts are QE. It's QE because the Treasury has to sell additional debt in order to raise the funds. That money will never be paid back. Even though Treasury debt issuance, or a fractionalized bank loan, does not show up in M2, when debt issued has NO chance of eventual repayment it is the same damn thing as printing money.

As for when the Fed will announce additional mortage/Treasury QE: they may not make an explicit announcement. They are playing games with the Treasury auctions and mortgage buybacks by playing "hide the real source of funding behind the big mysterious buyers." In effect, this is really QE in disguise.

The other fact is that several Federal Reserve officials have already issued public statements in which they explicity expressed the probable need for an extension of QE, including Bill Dudley, head of the all-powerful NY Fed and Janet Yellen, SF Fed head who is vying for one of the three vacant FOMC Board Member seats.

So my direct answer to the question is that QE will not end and the Fed will do whatever it takes to continue printing money at an accelerating rate, but in a way that will be insidiously devious. There are many reasons the Fed has spent $10's of millions on the effort to successfully quosh Congressional legislation requiring an audit. The ability to hide the true money supply is one the primary reasons.

In fact, we can expect that the Fed/Govt is now entering into the final chapter of the U.S. dollar, in which the laws of history and of economics suggest that the process of QE is going to accelerate, increasing at a geometric rate until the U.S. dollar collapses. Rob Kirby wrote a must-read analysis for financialsense.com yesterday (kudos to DC of NJ for sourcing this): Here is the link: Rob Kirby and here is his brilliant chart he posted:

(click on the chart to enlarge)

That chart is even more tragically beautiful than the Alan Blinder statement that preceded it - both are the golden truth. The economic law to which I refer is know as "the law diminishing marginal returns." This law applied to money printing dicatates that the amount of money to be printed will have to increase at an increasing rate in order to maintain the intended result, at the margin. In other words, as is reflected in Mr. Kirby's chart, if the Fed does not keep printing more money at a faster rate, the system will completely collapse. History has repeatedly given us this result - that plus we can expect, at some point, that price inflation will accelerate at an increasing rate.

Monday, March 8, 2010

This post is in conjunction with my earlier post today. It seems as if Janet Tavakoli, a widely acknowledged expert in derivatives and structured finance - both real world and academic - has published a piece today, published by the Huffington Post, in which apparently there are CDS buyers who are calling for contracts that require gold as collateral rather than euros or U.S. dollars. Although she does not specifically mention who the buyers of these swaps are, I believe it makes sense that China is one of the primary buyers of CDS protection of U.S. Treasuries being that they have close $1 trillion in exposure to Treasuries, and might want to "hedge" their postion a bit with something other than fiat paper and would be asking for something tangible like gold as collateral.

My friend "Jesse" of Jesse's Cafe Americain has written an excellent commentary today which is accompanied by a link to Ms. Tavakoli's article. Here's the link: LINK.

As Jesse points out, it would make sense that China would want to receive settlement in something other than dollars if the U.S. Govt credit rating is downgraded. In fact, gold makes the most sense because a U.S. downgrade would also mean that every other fiat currency is likely in the toilet. My guess is that it's one of those "where there's smoke, there's fire" type of deals. Hopefully we can receive further confirmation on this.

Gold drifted higher in overnight trading, as Asia/India continue to accumulate the yellow dog, and then was promptly smashed about 45 minutes into the pure paper-traded Comex market. This is a pattern that has persisted since the beginning of the bull market in gold 9 years ago, but has become more blatant during the past 18 months, as eastern hemisphere Central Banks buy gold and nearly all Central Banks have stopped selling gold.

There's some news items that people might have missed which would explain why the Fed would be interested in slamming gold this week. Paul Volker was in the news yesterday lecturing that it is too soon to tighten interest rates OR monetary stimulus: “This is not the time to take aggressive tightening action, either fiscally or monetary-wise,” said Volcker in an interview in Berlin March 6, pointing to “high” unemployment. “So I think we have to, as best as we can, maintain the expectation that it will be taken care of in a timely way.” This was in Bloomberg News yesterday, so I'm sure it was not widely read or dissemintated: LINK

Please note that Volker specifically referred to managing "expectations" with regard to monetary policy. Part of the Government/Fed program of Management Of Perception Economics (Jim Sinclair's term, Larry Summers' hallmark) is trying to keep the price of gold from rising too far and too fast. It makes sense that gold would be attacked with paper on the Comex after Volker's statements yesterday.

The other news that hit the tape quietly this morning is the fact that the FDIC is bleeding badly and needs to raise billions in funding in order to keep the ongoing bank collapse orderly. In a speech today to a group of economists, FDIC head Sheila Bair pontificated, begged actually, for more FDIC funding. The lipstick on the pig is being sold as new bank fees to fund the FDIC bailout - but we know better than that. The House has passed a Bill authorizing fees charged to banks to raise this money. The Senate wants to pass legislation that would use Taxpayer money. Here's the link: Taxpayers will end up funding the FDIC

There is no doubt in my mind that Congress will convince itself that the Taxpayers need to fund the FDIC and the money can be garnished from the banks later. If anyone really believes that Congress will force the banks to cough up the money needed to for FDIC to continue guaranteeing bank deposits, I would like to show them a bridge that connects Manhattan with Brooklyn that I can sell you cheaply. It's a good deal, really.

The point here is that the Fed is going to continue printing 100's of billions to keep the system from collapsing and the Taxpayers are going to be forced by Obama and Congress to continue monetizing the banking system. The price-action in gold today tells me I'm right.

Sunday, March 7, 2010

Yesterday I bought gas for the first time in about a week. I paid 25 cents/gallon more than a week ago. By my calculation, ($2.90 vs. $2.65) that's 9.4% price inflation. We're entering into a seasonally stronger period of the year for gasoline consumption. I doubt prices will retreat anytime soon.

Last week I picked up some 80/20 ground beef to make tacos. 80/20 has 20% fat and I prefer it for making tacos because of the high flavor factor. It also happens to be the less expensive than lower fat content ground beef. I paid roughly 30% more in price than the last time I purchased ground beef, which was about 2 months ago. I have read several accountings, plus a personal accounting from someone who knows a couple of cattle ranchers, that cattle herds are being reduced because of the high cost of feeding them.

But, oh ya, by the Government's "core" CPI measurement, the one which Bernanke prays to and preaches from - the one which excludes food and energy costs - there is no inflation...

(click on the chart to enlarge)

I hope everyone is beginning to see what's going on here and has made a decision to convert as much of their fiat funny money into gold and silver as they can. I don't know when, but at some point it will be very difficult and expensive and to buy gold and silver that is trustworthy and of which you can take physical delivery.

Friday, March 5, 2010

Yesterday, The Gartman Letter contained a comment from a Canadian "friend" who stated that according to his sources:

...an oil producer in [the Middle East] is converting about 200,000 BPD of oil sales into gold bullion - this offtake would equal about 6% of annual gold production...the quiet flight from dollars is accelerating… [and further] Russia bought 25 metric tonnes of gold in January, so 300 T per annum rate which is 45% more than the run rate of Russian gold production. A senior gold mining company operating in China informs us that China is buying all domestic gold production that is not consumed locally.

I can't speak as to the veracity of the report about the ME oil producer, but it's no secret that the Chinese are not exporting any of their gold - the Chinese Government has stated that publicly. And my chart from yesterday is based on data pulled directly from the website of the Russian Central Bank. I would argue that it is highly likely that some portion the report about the ME oil producer is true. I also find it interesting that all is quiet on the IMF gold sale front. My bet would be that several large "official" buyers are negotiating behind the scenes to purchase that chunk of gold. As Jim Sinclair has stated many times, usually when an official (i.e. large Central Bank of Govt body like the IMF) entity sells a big chunk of gold, we don't hear about it until after the transaction has already occurred. The last IMF sale to India/Sri Lanka/Mauritius is a perfect example of the golden truth of Sinclair's statement.

Last night I spent over an hour chatting with a long-time precious metals market professional. This person has been involved in this sector going back to the mid-70's and is very well connected. I thought that I knew a lot about the world of precious metals but this person's knowledge was quite humbling. He told me he has several colleagues who travel to Europe almost weekly. Lately they have been coming back and reporting that the Europeans have become extremely fearful of a global systemic collapse and many wealthy people there are buying as much gold/silver as they can and taking direct possession in order to avoid depository fraud.

Stephen Roach, Chairman of Morgan Stanley Asia, recently remarked that "It is well-documented by economists at SocGen and elsewhere, that the world has now entered a race to the currency bottom." I believe that the accelerating movement wealth out of fiat currencies, and especially out of U.S. dollars, into gold by large buyers is an acknowledgement that a currency crisis involving dollars/euros/yen is right around the corner. Have a great weekend with that in mind.

Thursday, March 4, 2010

Richard Nachbar, (Richard Nachbar Rare Coins) at http://www.coinexpert.com/, was kind enough to send me his updated chart for January of the Russian CB gold holdings:

(click on chart to enlarge)

You can see the rapid growth in Russia's gold accumulation. As per the numbers in my post from yesterday, Russia will have to double its current holdings in order to raise its gold holdings up to the 10% of foreign reserves that is currently typical at Central Banks. Moreover, I expect that globally CB's are looking to take their gold holding substantially higher.

Wednesday, March 3, 2010

I bet at this point in time, everyone reading this wishes they had supported Ron Paul's candidacy for President in 2008. Be that as it may, Congressman Paul was on Fox Business today to chat about the coming currency crisis that will hit this country. Congressman Paul states that we'll be lucky if we can go 2 or 3 more years without a currency crisis, which means we're going to have a lot of inflation. He says he's been buying gold since 1971 (Nixon closed the gold window) at $35/oz and he's still buying gold. And he explains that gold is a good insurance policy to protect your family. Here's the video:

The First Deputy Chairman of Russia's Central Bank stated in an interview with Izvestia, one of Russia's most circulated newspapers, that the Central Bank wants to increase its gold holdings. Here's the quote from Bloomberg News, which was confirmed by an official at the Central Bank (Bank Rossii):

Russia’s central bank wants to increase the share of gold in its international reserves, First Deputy Chairman Alexei Ulyukayev said in an interview published in Izvestia today. His comments were confirmed by a Bank Rossii official. Here's the Bloomberg link: Link

(click on chart to enlarge)

In January, the latest month for which data is available, the Russian Central bank increased its gold holdings by 800,000 ozs (approx. 22 tonnes), or 4.1%, to 20.5 million ounces (approx. 582 tons). This represents roughly 5% of Russia's foreign reserves. Typical Central Bank gold holdings globally are around 10% of reserves. When the world was on the gold standard, Central Banks held 40% of their reserves in gold.

Russia's gold holdings have increased 57% since Jan 2007 and 22% from a year ago. There is no doubt that Russia is seeking to rapidy accumulate gold. Seems to be an Eastern Hemisphere trend. Here's is graphic portrayal of the growth in Russia's gold reserves thru November 2009. This is from Richard Nachbar's http://www.coinexpert.com/:

On another note, the ECB showed no change in its gold holdings for the 4th week in a row. The ECB has been a steady seller of gold for over a decade and this is the first time in the 11-year history of the Washington Agreement, which regulates ECB gold selling, that the ECB has remained dormant with respect to selling gold.

Tuesday, March 2, 2010

Rumors are starting to swirl around that Germany is getting ready to lead a bailout of Greece. Apparently Germany is working behind the scenes to head off speculators from profiting on any bailout. As per a Reuters article yesterday: "Germany has moved to identify speculators in Greek debt to try to prevent them from profiting from any bailout of the euro zone country's ailing economy, a source with direct knowledge of the matter told Reuters...While publicly Chancellor Angela Merkel has insisted that Athens solve its own problems and there has been anger over Greek comments about war claims dating back to the Nazi occupation, privately German officials say they have an emergency plan. 'There is a moral responsibility on Germany (to help Greece) given European history and they know it,' said Olle Schmidt, a European liberal parliamentarian. 'Together with others, they will be obliged to help.'"

Today Reuters was carrying this story: "Ever-cautious Chancellor Angela Merkel has made comments which could be seen as preparing the ground for some sort of aid and in a clear shift, some influential newspapers have started running editorials arguing Germany may have to act." Here's the link: German bailout imminent?

IF Greece is bailed out, and it is my view that if Germany does not lead one, then the U.S., via the IMF, will spearhead a bailout because of AIG's known CDS exposure, expect that the markets will party hard to the upside, especially gold, silver and mining stocks. I believe part of today's ebullience in the precious metals market (HUI +2.57%, gold +1.45%, silver +2.79%) was related to these news reports. The reason this development would be positive for the precious metals is that any kind of bailout like this means there is a de facto devaluation of the fiat currency involved. In this case primarily euros, but to the extent the UK and the U.S. are involved, secondarily sterling and greenbacks.

With this as a backdrop, please enjoy the chart below, provided by DC of New Jersey and created by Carl Swenlin of Decisionpoint.com (green commentary is mine):

Make no mistake about it, this pay raise is coming from your pocket and being put into the pockets of the crooks at AIG, with the approval of the crooked Obama Administration. Obama's integrity is now in question. Recall, it was just last week that AIG reported an $8 billion dollar loss (remember, the real loss was likely a lot higher if you adjust assets to market instead of to fantasy) AND had to beg the Government for more money. This is your money...from Clusterstock.com:

Fresh off of another round on eye-popping losses and hints that it may need more taxpayer funds, AIG is preparing to boost the salaries of some of its highest paid executives...Bloomberg's Margaret Brennan broke the news that Ken Feinberg, the Obama adminsitration's Pay Czar, may allow AIG to raise the compensation levels for some of its executives. LINK

Through the colorful writing of SocGen's erudite and perceptive Albert Edwards:

Either governments pursue the path of fiscal rectitude (although it is a bit late for that) and we subside back into recession or we debauch the currency through deficits, the printing press and devaluation.

SocGen’s Albert Edwards says everyone should just relax and stop worrying about GBK because in an Ice Age a weak currency is the escape route of choice from the deflationary quicksand.

What's ironic is that the American public and policymakers seem to completely lack the understanding that, since 2002, the U.S. dollar has experienced substantial devaluation, with the dollar index plummeting from 120 to a low of 71 and a current reading of 80.66. That's drop of 41% from high to low and 33% from high to current. Remember, this drop is measured against a basket of global currencies, predominantly euros, yen and sterling.

Anyone want to take the position that a drop in the U.S. dollar of that magnitude is NOT debasement? Our "future" is here and now. Prepare yourself for serious price inflation ahead.

Monday, March 1, 2010

I was going to post a blog this weekend which stepped through of the economic/political evidence showing why I believe the "cake eaters" might start to get testy soon (i.e. civil unrest may foment). As I'm sure everyone is well aware, the State budget cuts in education in California prompted some protesting in Berkely which required riot police, from Clusterstock.com: Let Them Eat Cake!

Here is why I believe the momentum has started to unfold in the direction of these public unrestful protests spreading nationwide: There is now an organization that has established a nationwide call to protest the deep cuts in public education in every State: No, We Won't Eat Cake

I'm sure almost no one reading this was aware, given the sorry state of U.S. mass media, that the Chicago Public School System is facing a $1 billion defiicit and there will be deep cuts in education: Chicago Tribune.

I would like to add that, for those old enough to remember the MLK assassination/Viet Nam protests in Chicago in 1968 which ultimately helped undermine Humphrey's Presidential campaign against Nixon, recall that student civil unrest started in Berkely and then spread to Chicago.

Something to ponder as Obama/Pelosi/Reid try to jam a healthcare bill up our ass that more than 60% of the country opposes...

Let me preface this with the fact that every time I get "in my bones bullish," the cartel manages to pull out a big surprise attack on the metals - so maybe this is a good contrarian indicator. Having said that:

I think we're on the cusp of a big move up in the metals here - I can feel it in my bones. Gold has tested the inverse HnS breakout area (1030 area - not exactly but it did hit a 1044 intra-day low which is close enough for Government work and IED bombs), it weathered the Fed/IMF smash attack and it is really weathering the euro/pound cliff-dive well. When Greece is resolved, it will create an explosion higher in the euro and gold will do a moonshot. I think this is partially why we're seeing the commercial long side grow. Gold could well be on its way to hitting its technical objective from breaking the inverse HnS of $1350 area. From there, who knows...we're also going into what is a stronger seasonal period.

Eric Arthur Blair aka George Orwell

"Hope" is not a valid investment strategy

Full Time Jobs Over Last 5 Years

Is Your Gold Missing?

Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Epic Quote - "Jesse" Sent This To Me

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title." - Anonymous

The Basic Fundamental Problem

What's the solution?

“THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS THE RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION OR LATER AS A FINAL AND TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED.”

Ludwig von Mises – Austrian Economist (1881- 1973)

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie? JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

Priceless Quote From Richard Russell

On Larry Summers: This doofus practically ruined Harvard when he headed it. I can't think of a worse choice to be chief economic advisor. I wouldn't trust Summers to manage a Starbucks franchise.

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.

Quote of the Month

And very relevant in the context of yesterday's post about gold moving higher against all fiat currencies:

Just imagine what would happen if a mere ten percent of the money currently going into bonds were instead to go into gold. As in 1972, the real move has yet to begin.

- Murray Pollit, Pollit & Co.

A Picture Says It All...

www.moneyandmarkets.com

Golden ore samples produced by Eurasian Minerals

Undisclosed exploration site

The Next Reserve Currency?

1 oz. Chinese Panda

Guess who said this?

Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies...What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.

-Alan Greenspan, 9 Sep 2009

THIS is what REAL money looks like

1 oz. Gold Eagles

Alan Greenspan said what?

“Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

From "Gold and Economic Freedom" a 1966 Essay by Alan Greenspan

About Me

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance.
Currently I co-manage a precious metals and mining stock investment fund in Denver.
My goal is to help people understand and analyze what is really going on in our financial system and economy.